Trust Law in the UK has undergone some impactful changes over the last few years. The biggest have been in relation to the registration of trusts with HMRC.
This article looks at developments in UK Trust Law and provides insight for will writers on the effects these changes have on estate planning and trust management.
Changes to the Trust Registration Service
In 2017, the government set up its Trust Registration Service (TRS) – a central register of the beneficial ownership of trusts. The purpose of the Register was to combat money laundering, terrorist funding, and serious crime in line with EU directives.
Initially, only trusts that were liable for UK taxes had to be registered with the TRS, including those paying Inheritance Tax (IHT), Income Tax, Corporation Tax, and Stamp Duty.
This all changed in 2020 when amendments to the EU Money Laundering and Terrorist Financing Regulations meant that virtually all trusts became subject to registration with HMRC, regardless of their taxpaying status.
What does this mean for will writers?
As of September 2022, all trustees are now legally required to share the details of their express trust with HMRC within 90 days of its creation. For will trusts, the registration deadline is two years from the trust’s creation. If the trust is distributed and closed within this period, there is no need to register it with HMRC.
An express trust is an arrangement initiated by a settlor in writing for trustees to oversee assets held in trust for specified beneficiaries. This includes:
- Discretionary trusts
- Trusts established under a will on death
- Declarations of Trust for co-owners of a property
Off-shore trusts must be registered if they have at least one UK resident trustee.
Any changes to registered trusts must also be logged with HMRC within 90 days of the change.
Although it could be viewed as a challenge for advisers, the change in registration requirements for express trusts provides an excellent opportunity for you to broaden your services.
Registration of new trusts and amendments to existing ones can be completed with HMRC by the trustees themselves. However, the process for registering a trust is complex, time-consuming, and requires a good working knowledge of trusts, tax, and the associated legislative issues to navigate the online system and complete the details correctly. It also requires a lot of fact find information about the trustees and beneficiaries which can prove difficult to compile. For these reasons, offering clients an additional service that registers and amends trusts on their behalf can be lucrative.
You can register a trust on behalf of your client through certified providers such as CTT, which can also act as a trustee. Choosing this service ensures that not only is the trust accurately registered, but its information will be updated regularly with HMRC throughout the trust’s lifetime. You can also register third party trusts via our Legacy Will Writing Software.
Trusts exempt from HMRC’s obligation to register with the TRS include:
- Pension schemes
- Charitable trusts
- Legislative Trusts and those imposed by court order
- Will trusts that are wound up within two years of death
- Trusts held for minors or those who’ve lost capacity
- Trusts of Land
- Life insurance or assurance trusts paying out critical illness or death
- Existing trusts with a value of less than £100 created prior to 6 October 2020
A full list of exemptions is available here.
TRS registration responsibilities
Ultimately, responsibility to ensure new trusts are registered and existing trusts are updated falls to the trustee(s). Failure to register eligible trusts within the specified timeframe, or update changes to trusts with HMRC, could result in penalties.
Estate planners and will writers should make trustees aware of their responsibilities to register a new trust with HMRC at the time of its creation and offer them solutions for this. If you store trust documents on behalf of clients, check your records to ensure all qualifying trusts are registered with the TRS and their details are accurate and up to date.
Professionals should also be mindful that any trusts for which they are trustees are kept up to date with HMRC and the registered details are accurate. Trusts for which CTT are acting trustees are maintained as a matter of course.
Registering a Trust with HMRC
To register a new trust with HMRC’s TRS, or update the details of an existing trust, the trustee(s), or agent acting on behalf of the trustee(s), must create an online Government Gateway account. This will allow them to submit the required trust information to the TRS, which includes details for:
- the lead-trustee
- the co-trustees
- the settlor
- the beneficiaries
In addition, trustees must also register complex estates with TRS. These are estates where:
- The total tax liability (income tax plus capital gains) for the entire administration period exceeds £10,000
- The probate gross value exceeds £2.5 million
- The value of the assets sold by the personal representative in any one tax year exceeds £500,000
Alternatively, the trustee(s) can appoint a professional adviser to gather the relevant information and register the trust on their behalf. If you wish to register or update a trust with HMRC on behalf of a client, or seek confirmation on whether a trust requires registration, CTT Legal can provide you with the most up-to-date trust advice.
Changes to Income Tax on low-income trusts and estates
In the 2023 Spring Budget, the government announced proposals to simplify how Income Tax applies to low-income trusts, estates, and their beneficiaries.
It provides that trusts and estates with income up to £500 do not pay or report Income Tax as it arises (this will extend to all forms of estate income as of April 2024). This amount will be reduced for some groups of trusts set up by the same settlor.
It also removes the default basic rate and dividend ordinary rate of tax on the first £1,000 of discretionary trust income. Where income exceed these allowances, tax will be payable on the full amount.
Trust beneficiaries are entitled to tax-free allowances on income distributed to them that is within the £500 limit for the personal representatives. This does not affect beneficiaries’ tax credits and savings allowance.
There is no requirement for trusts to report Income Tax where the only source of income is savings and the tax otherwise payable does not exceed £1001.
Trust Law is constantly changing and being updated. As advisers, it’s important to keep up to date with the latest trust legislation so you can offer clients the best, most relevant trust solutions.
At CTT, we view changes in legislation as opportunity to improve our services and broaden your offering. For more information on registering or updating a client’s trust through CTT, and how you can add this service to your provision, contact the team at CTT Legal today.